26 June 2011
dear sir my monthly earning apprx. Rs. 40000-50000/- p.m.
My two loans status:
1. Housing loan of Rs. 1150000/-(Original Amt.), at interest rate of 9.50% for 20 years [ my monthly installment is Rs. 10900/-] this loan taken in Jun-2009
2. Car Loan of Rs. 330000/- at Int. 9.50% for 5 year [ my monthly installament is Rs. 7000/-] this car loan taken in Nove-2010
Note: there is no any pre payment charges on above both loans
now please advice me that if i want to pay ad hoc amount appr. Rs. 200000/- lacs. ( i have 4 option only)
A. part pay Housing loan ?
B. Part Pay Car loan ? or
C. Make SIP/ FD or other saving of this 2 lacs. and earn income/interst to pay installment..
D. combination of any above
please tell me which option should i opt? Note that I M paying regular EMIs from my Regular Income and will continue.
26 June 2011
A. part pay Housing loan ? - pay this 100%
B. Part Pay Car loan ? or - you can opt to pay part
C. Make SIP/ FD or other saving of this 2 lacs. and earn income/interst to pay installment.. - Not a wise option
D. combination of any above
------------------------------------- still you are short of 14800 in annual payout, so beware of penal charges, try to cover the both loans as per schedule.
29 June 2011
Sir, i don't understand your ans. please note that regular EMI is being paid from my regular income. this 2 lacs is from my ad hoc saved income, which i want to use to reduce my monthly EMI laibility... keeping Income Tax also.
03 August 2024
Given your situation, here's an analysis of your options for using the Rs. 200,000 to manage your loans:
### **Options Analysis:**
1. **Option A: Part Pay Housing Loan** - **Impact:** - **Reduction in Principal:** Paying Rs. 200,000 towards your housing loan will reduce the principal amount of Rs. 1,150,000. This will result in lower overall interest payments and can shorten the tenure of the loan or reduce the monthly EMI. - **Interest Savings:** Since housing loans typically have a longer tenure and higher interest component, this could lead to significant interest savings over the life of the loan. - **Tax Benefits:** Interest paid on housing loans qualifies for tax deductions under Section 24(b) of the Income Tax Act. By reducing the principal, the interest deduction might decrease, but overall, the benefit is likely due to reduced future interest payments.
2. **Option B: Part Pay Car Loan** - **Impact:** - **Reduction in EMI:** Paying Rs. 200,000 towards your car loan will reduce the outstanding balance, which could significantly reduce the EMI or shorten the tenure. - **Interest Savings:** Car loans usually have a shorter tenure compared to housing loans, so while the interest saved might be smaller in absolute terms, the immediate impact on your monthly budget will be noticeable. - **Tax Benefits:** Car loan interest does not qualify for tax deductions.
3. **Option C: Make SIP/FD or Other Savings** - **Impact:** - **Interest Earnings:** By investing Rs. 200,000 in a Systematic Investment Plan (SIP) or Fixed Deposit (FD), you can earn interest or returns. However, the returns from these investments may be lower compared to the interest rate on your loans. - **Liquidity:** Keeping the money invested provides liquidity and flexibility, but might not offer immediate relief from loan repayments. - **Tax Benefits:** Interest earned from FDs is taxable under income from other sources. SIPs are subject to capital gains tax on profits, with long-term capital gains being taxed at a lower rate.
4. **Option D: Combination of Above** - **Impact:** - **Balanced Approach:** Using part of the Rs. 200,000 to pay down the housing and car loans and the rest to invest can provide both immediate relief in terms of reduced EMIs and potential future returns. - **Flexibility:** This approach balances debt reduction with investment, providing short-term relief and long-term growth opportunities.
### **Recommendation:**
**1. **Evaluate Interest Rates:** - Since the car loan has a shorter term and possibly higher rate compared to the housing loan, paying down the car loan first can lead to quicker relief in your monthly budget. However, housing loans typically accrue more interest over time due to their longer duration.
**2. **Immediate Relief:** - If your primary goal is immediate relief from monthly obligations, prioritize paying down the car loan as it will impact your monthly budget more immediately.
**3. **Long-Term Savings:** - For long-term savings, part-paying the housing loan might be more beneficial due to the higher interest accumulation over time.
**4. **Investment Consideration:** - If you’re considering investing the funds, ensure that the returns from your investments are higher than the interest savings from paying down the loan.
### **Suggested Approach:**
**Combination Strategy (Option D):** - **Part Pay Car Loan:** Allocate Rs. 100,000 to pay down the car loan, which will immediately reduce your EMI. - **Part Pay Housing Loan:** Allocate Rs. 50,000 towards the housing loan to reduce the principal and future interest payments. - **Invest Remaining Amount:** Invest the remaining Rs. 50,000 in a short-term FD or SIP for liquidity and potential returns.
### **Summary:** To maximize your financial benefit, prioritize paying off high-interest loans (car loan) and then address the lower-interest loans (housing loan). A balanced approach, including some investment, can provide immediate relief and future growth. Always ensure you review your financial goals and consult with a financial advisor to tailor the strategy to your specific needs.
CAclubindia
